Introduction to m&a
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Transcript of Introduction to m&a
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Introduction to M&A
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Why acquire another company?
Why acquire another
company?
Synergies
Acquire
R&D/patents
Gain access to
new distribution
channels
Increase supply-
chain power
Deal with
overcapacity
Defensive M&A:
Eliminate
Competition
Acquire key
personnel
Product-line
extension
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M&A: Deal lifecycle and buyers
Development Growth Maturity Decline
• Start-up firms are
often acquired for
their innovative ideas
• Start-up firms rarely
acquire other firms
• Growth firms are very
attractive for acquirers
• Firms in this stage often
merge, in order to deal
with overcapacity
• Companies with
declining revenues are
often purchased by
healthier competitors
who are interested in
their know-how or
brands
Re
ve
nu
e
Time
Mergers, LBOs • Defensive M&A
Takeovers,
Restructuring
Type of investors
Corporate
Private Equity
Venture Capital
Corporate
Private Equity
Corporate
Hedge Funds,
Specialist Funds
Corporate
Private Equity
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Type of M&A processes
Teaser Process
Letter
The deal process
Due
diligence
Binding
offers
Info
Memo Short
List
Negotiati
on
Tender
offer
Private
Transaction
Auction
Listed
target
The process usually lasts between 2-6 months. Some auctions could even last up to an year
Confid.
agreem.
Teaser A brief summary of the company with a short description of its business.
Often does not include the company’s name
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Type of M&A processes
Teaser Process
Letter
The deal process
Due
diligence
Binding
offers
Info
Memo Short
List
Negotiati
on
Tender
offer
Private
Transaction
Auction
Listed
target
The process usually lasts between 2-6 months. Some auctions could even last up to an year
Confid.
agreem.
Confidentiality
agreement
An agreement not to distribute reserved information. The target needs to be
assured that the access it gives to the bidders would not lead to a leakage of
strategic information
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Type of M&A processes
Teaser Process
Letter
The deal process
Due
diligence
Binding
offers
Info
Memo Short
List
Negotiati
on
Tender
offer
Private
Transaction
Auction
Listed
target
The process usually lasts between 2-6 months. Some auctions could even last up to an year
Confid.
agreem.
Information
Memorandum
A document providing a description of the target’s business, financials,
management team, product portfolio, market positioning etc.
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Type of M&A processes
Teaser Process
Letter
The deal process
Due
diligence
Binding
offers
Info
Memo Short
List
Negotiati
on
Tender
offer
Private
Transaction
Auction
Listed
target
The process usually lasts between 2-6 months. Some auctions could even last up to an year
Confid.
agreem.
Process Letter Defines the essential elements of the transaction: timing, valuation range,
other conditions, due diligence access
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Type of M&A processes
Teaser Process
Letter
The deal process
Due
diligence
Binding
offers
Info
Memo Short
List
Negotiati
on
Tender
offer
Private
Transaction
Auction
Listed
target
The process usually lasts between 2-6 months. Some auctions could even last up to an year
Confid.
agreem.
Due Diligence The target firm provides access (limited or full) to its financial, tax and legal
documentation. Often, information about the target is provided in a data room
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Type of M&A processes
Teaser Process
Letter
The deal process
Due
diligence
Binding
offers
Info
Memo Short
List
Negotiati
on
Tender
offer
Private
Transaction
Auction
Listed
target
The process usually lasts between 2-6 months. Some auctions could even last up to an year
Confid.
agreem.
Binding Offers Offers made by the participants in an auction, indicating how much they are
willing to offer for the target. As the name suggests, these offers are binding
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Type of M&A processes
Teaser Process
Letter
The deal process
Due
diligence
Binding
offers
Info
Memo Short
List
Negotiati
on
Tender
offer
Private
Transaction
Auction
Listed
target
The process usually lasts between 2-6 months. Some auctions could even last up to an year
Confid.
agreem.
Short List After receiving indications about possible valuation, the target and its
advisors decide which participants will be left in the auction and receive due
diligence access
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Type of M&A processes
Teaser Process
Letter
The deal process
Due
diligence
Binding
offers
Info
Memo Short
List
Negotiati
on
Tender
offer
Private
Transaction
Auction
Listed
target
The process usually lasts between 2-6 months. Some auctions could even last up to an year
Confid.
agreem.
Negotiation Negotiation includes various elements under consideration. The structure of
the price, earn out mechanisms, price adjustment terms etc.
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Type of M&A processes
Teaser Process
Letter
The deal process
Due
diligence
Binding
offers
Info
Memo Short
List
Negotiati
on
Tender
offer
Private
Transaction
Auction
Listed
target
The process usually lasts between 2-6 months. Some auctions could even last up to an year
Confid.
agreem.
Tender offer A tender offer is submitted to a listed firm. It is a public, open offer addressed
to all stockholders which offers to buy their shares at a specified price
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Valuation of target companies
Why is it necessary to perform a valuation of the target company?
Find Fair Value
of the Transaction
Approach the right
Buyers Arrange financing
Define how much needs
to be financed
Justify financing in front
of banks
Find Fair Value
Value Synergies:
Corporate buyers
Value IRR:
Private equity
Approach Bidders who
could afford the firm
Discounted Cash
Flows (DCF)
Trading
Multiples
Transaction
Multiples
Use a combination of them in order to
triangulate results
Inputs:
• Comparable firms which are
listed
• A measure indicating
operating profitability (e.g.
EBITDA)
• Comparable firms which
have been subject to a
transaction
• A measure indicating
operating profitability (e.g.
EBITDA)
• Top line forecast for 5-10
years,
• Estimated cost of capital
• Growth rate after the
forecast period
Inputs: Inputs:
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Payment options in M&A deals
Enterprise
Value
Equity
Net Debt
Financial liabilities - Cash
Enterprise value -/+ Net debt
Equity paid with: • Cash • Stock • Deferral – “Vendor loans”, “Earn outs”
Special treatment of: • Pension obligations • Tax liabilities • Litigations • Overdue payables
Type of
payment Cash Stock
Advantages Does not dilute
ownership
Aligns the interests of
new and old ownership
Disadvantages If cost of debt is high,
could be heavy
Dilutes ownership
Earn-out
Aligns the interests of
new and old ownership
Seller needs to monitor
the firm post closing
Crystal value for seller No need for financing Helps to bridge expectations
Subject to valuation No upside from future
performance
Seller depends on the
Buyer’s management
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Financial vs. Corporate Buyers
Type of
Buyer
Financial
Buyer
Corporate
Buyer
Focus in the
transaction
• Focus on cash flows,
and capital gains • Unlock synergies
Investment
Horizon • 3-5 years • Long term
Type of deal • Full Acquisition
or consortia
• Full Acquisition,
Merger, Joint Venture
Leverage in the
transaction
• High • Medium
Management
involvement
• Following the company
through Board
representatives
• Integration of the
Management of the two
companies
Valuation
focus
• Multiples
• Cash flows
• Cost of capital
• Synergies
• Growth
• Long term view
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